When buying a condo in Orange County, it is important to understand the insurance requirements. Whether the loan will be FHA, VA USDA, Fannie Mae or Freddie Mac, the lender will need to make sure the property is insured beyond the typical "exterior" insurance policy most Home Owners Association's cover.
What is a "Walls-In", or "HO-6" Insurance Policy?
A Walls-In policy will cover the interior of the condo. In insurance lingo, the Walls-In policy is referred to as the HO-6, or Interior Insurance Policy. While most people have known that a condo Master Policy is required, few people have understood the interior policy requirements. Over the past year, as lenders have dealt with tightening guidelines, the condo insurance guidelines have become more spelled out. Because there is a high concentration of condo's in Orange County, it has become very important to understand the insurance requirements.
The HO-6 or Interior Insurance Policy needs to provide the following:
- Fannie Mae - According to Fannie Mae, the policy must cover 20% of condo unit's appraised value.
- Freddie Mac - requires 100% of replacement cost
- FHA, VA, USDA - they all require it, but don't give specifics on the amount of coverage. Lenders have their own requirements and will typically follow either Fannie Mae or Freddie Mac insurance guidelines for their FHA, VA, and USDA loans.
The bottom line is Orange County home buyers need to get the insurance requirements directly from their lender, And of course, working with an experienced, local, Direct FHA and VA Orange County loan officer can make the process much easier.
So What Does the Master Insurance Policy Cover? Is There a Time When an HO-6 is Not Required?
The HO-6 policy is not required every time. There are times when the Master Insurance Policy actually does cover the interior of condo's in the project. This seems to be the exception rather than the rule, but on occasion the coverage is there. The Master Insurance Policy also must cover the entire project, including the buildings, fixtures, and common elements. The coverage needs to be 100% replacement.
As soon as an offer is accepted and escrow is "open", the homebuyer should get a copy of the Master Insurance Policy, and with assistance from their Orange County Realtor or Orange County Direct Lender, figure out whether an HO-6 Policy will be required. If so, begin researching insurance companies and getting quotes. These days, it is important to not wait until the last second to take care of the insurance.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
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There is a small condo here that carries no insurance on the building - and no mortgages are possible. All owners claim enough "solvency" to be able to rebuild if necessary. Risky is an understatement.
That would definitely not be a "lendable" project. Even if their was a Master Policy on that project, a lending requirement is that the Master Policy must notallow any self insurance arrangements resulting in the HOA being self insured.
When searching through multiple term quotes, it is very important to look for options that fit your overall needs. It is important that the policy is affordable.